Austerity Reaches the Hollande Government in France

Steven Erlanger|The New York Times

Friday, 13 Jul 2012 | 2:40 AM ETThe New York Times

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With his first Bastille Day approaching on Saturday, François Hollande and his government have had a good start to his presidency, impressing the French with a down-to-earth style. Mr. Hollande, a Socialist, and his prime minister, Jean-Marc Ayrault, have ordered downgrades in official luxury that have set a tone self-consciously different from that of the supposedly “bling bling” presidency of Nicolas Sarkozy.

Brendan Hoffman | Stringer | Getty

U.S. President Barack Obama meets with newly elected French president Francois Hollande (L) in the Oval Office on May 18, 2012 in Washington, DC.

In politics, symbols are also substance, and the changes range from the large to the small. Mr. Hollande has actually taken the train to Brussels, without a state jet following him, and his ministers have been ordered to hit the rails when possible (with a free pass on the national railway system). When they fly, they are encouraged to travel in coach class on commercial airlines. (Upgrades on Air France are probably a given for ministers, in any case.)

Official cars have been diminished in size and in luxury. Mr. Hollande has given up the presidential Citroën C6 for a smaller but hardly shabby Citroën DS5 diesel hybrid. He has reduced the ranks of his official drivers to two from three, and they are now supposed to stop at red lights. Mr. Ayrault gave up his C6 for a cheaper Peugeot 508. Cabinet ministers have also traded down, and the housing minister, Cécile Duflot, an ecologist who was criticized for wearing jeans to an Élysée Palace meeting, has ordered four official bicycles.

Champagne at receptions has largely been replaced by Muscadet, a considerably cheaper white wine, and prices at the official cafeterias for ministerial employees, always a bargain, have been raised modestly.

Even security has been put to the knife, at least a little. Junior ministers no longer get bodyguards, and the number of security workers attached to the presidency has been reduced by a third.

In general, Mr. Ayrault has ordered his ministers to reduce their official budgetssharply, by 7 percent in 2013 and by an additional 4 percent in each of the next two years.

As he promised during the campaign, Mr. Hollande has cut ministerial salaries by 30 percent (including his own, to $18,000 a month from $26,000). And for the first time, the salaries of ministers cannot exceed the prime minister’s salary, which is about $16,000 a month. Pierre Moscovici, the finance minister, told L’Express that “my salary is lower than that of my chief of staff, 12,000 euros, and of a few hundred of the civil servants” at the ministry. That is about $14,600 a month.

There has, of course, been criticism, especially from the center-right and from business leaders. Valérie Pécresse, the budget minister in Mr. Sarkozy’s government, has ridiculed these efforts as nearly meaningless in the face of France’s budget crisis, with total debt nearly 90 percent of gross domestic product and debt service alone costing more than $60 billion a year. “The austerity of the left is hypocritical,” she said. “Who will believe that the budget can be balanced by doubling the annual direct wealth tax and by lowering the salaries of ministers?”

But the symbolism is also meant to prepare the French for tougher times ahead, for some sacrifices to their own way of life and to the social-welfare system in the face of high deficits and demographic change.

Even more startling is the government’s intention to limit the remuneration of the bosses of major state-owned companies, to about 20 times that of the lowest-paid employee, or about $550,000 a year — part of an effort to end what Mr. Moscovici has called “intolerable hyperinequalities.” Henri Proglio, the chief executive of Électricité de France, reportedly earns $1.9 million a year — 64 times that of the company’s lowest-paid employee — and he could be paid about a third of what he gets now if the law goes through.

Luc Oursel, who recently took over the nuclear power company Areva , could see his salary halved to $400,000 from about $825,000. Jean-Paul Bailly, the chief of La Poste, could lose 41 percent of his $775,000 salary.

Given that French executives of state-owned companies already make less money than many of their European counterparts, there is concern that the restrictions, while essentially ideological and of little consequence for the economy, would mean that companies vital to the nation would attract fewer qualified managers. That atmosphere is enhanced by Mr. Hollande’s plans to tax those making more than $1.25 million a year at 75 percent, which, together with the revived wealth tax, could mean an effective tax rate of 90 percent.

Laurence Parisot, the head of the main business lobby, Medef, warned that the government risked making France less competitiveby restricting salaries and piling more taxes onto an already heavily taxed private sector. “We fear a programmed strangulation,” she said, warning Mr. Hollande, “Be careful not to turn our country into a sort of enclave disconnected from the rest of the world.”

There are few Socialist ministers with any business experience. Ms. Parisot said that their plans instilled “a palpable anxiety and an immense worry for every entrepreneur,” because they are “disconnected from company life, from what a company can bear,” especially in a period of minimal growth and high unemployment .

In two days of discussions this week with business and labor leaders, Mr. Ayrault and his key ministers made an effort to prepare the unions for changes to come, especially next year, when sharp budget cuts will be necessary to go along with still-higher taxes. The government has been urged by independent state auditors and by the influential Cercle des Économistes to reduce the tax burden on the private sector, especially for social benefits, to improve French competitiveness in a globalized world.

Mr. Ayrault hinted that some of that burden might be moved toward income taxes, rather than the corporate tax. He also said that there should be a larger study of how to finance and even to reform France’s generous social welfare programs.

But consultations take time, and Ms. Parisot remained unhappy with the lack of progress on liberalizing a labor market hampered by generous mandated benefits and rigorous job protections. She was also troubled by suggestions that union leaders could be present during decisions about compensation.

The government got a taste of reality on Thursday, when the French carmaker PSA Peugeot Citroën , hit by the European recession , announced that it would cut 8,000 more jobsin France. The social affairs minister, Marisol Touraine, said, “We cannot accept something like this,” and the government promised to study the problem.

But for Bastille Day, Mr. Hollande is sticking with the symbolism.

The traditional July 14 garden party, which used to be a way to honor distinguished people from all walks of life from all over France, was canceled by Mr. Sarkozy in 2010 to symbolize belt tightening. Mr. Hollande will not dare resurrect it, although the Élysée gardens will be open to the public on Saturday afternoon.

Mr. Hollande has decided, however, to maintain the July 14 military parade, with jet overflights, armored vehicles and hundreds of military personnel, an extraordinarily costly affair. And like a good politician, he has decided to restore a nationally televised presidential interview on Bastille Day. But given the low viewership expected on a Saturday evening in mid-July, he will do it at lunchtime.